In its judgment of 20 May 2019, the Court of Cassation ruled that benefits (in cash or with a cash value) granted by third parties to employees in return for work carried out in performance of their employment agreement with an employer is remuneration on which social security contributions are due. The Court of Cassation thus confirms the changed position of the National Social Security Office ("NSSO") following a judgment of the Brussels Labour Court.
The concept of remuneration
Labour and social security law have different remuneration concepts. The general concept is that remuneration constitutes the counterpart for the work carried out in the performance of an employment agreement.
The NSSO legislation, however refers to the remuneration concept in the Act on the protection of remuneration in order to determine on which "remuneration" social security contributions are due. This remuneration concept requires: (i) a pecuniary or financially valuable benefit; (ii) to which the employee is entitled because of the employment relationship; (iii) at the expense of the employer.
Benefits granted by third parties: at the expense of the employer?
The question of what constitutes being "at the expense of the employer" has caused some concern over the past year.
For many years, the position of the NSSO was that this condition is fulfilled if a benefit is directly or indirectly, either financially or legally, at the expense of the employer. Consequently, a benefit granted directly to the employee by a third party without any intervention or any legal obligation on the part of the employer was not considered as remuneration. Thus, this benefit was not subject to social security contributions.
Following a judgment of the Brussels Labour Court of 7 March 2018, the NSSO gave a very broad interpretation of the concept of social security remuneration in its administrative instructions (see also Eubelius Spotlights December 2018). In this judgment, the Labour Court ruled that social security contributions were due on a sales premium paid by a producer of beauty products to employees of a retail chain depending on the sale of its products, without these being at the expense of the employer.
Despite strong criticism by legal scholars, the Court of Cassation has confirmed the judgment of the Labour Court in a very surprising judgment dated 20 May 2019. The Court of Cassation ruled that the employer's obligation to pay the remuneration is not a separate component of the general concept of remuneration, but a necessary consequence of the performance of the employment agreement. The Court considers that it is not compatible with the nature of the employment agreement and the concept of remuneration to assume that the employer is not obliged to pay what constitutes the counterpart of the work performed in performance of the employment agreement. According to the Court, the NSSO's remuneration concept does not affect the general concept of remuneration, but extends it to benefits that are not the counterpart of work.
This means that any benefit in return for work carried out under the employment agreement is remuneration on which social security contributions are due. It is not necessary to determine whether employees are entitled to the benefit at the expense of their employer.
Social security contributions to be paid by the employer or the third party?
The NSSO legislation states that when part of the remuneration is paid to an employee through the intervention of a third party, this third party replaces the employer for the fulfilment of all the obligations that are incumbent on that employer concerning this remuneration. This concerns in particular the filing of a declaration and the payment of the contributions.
However, the third party can discharge itself from these obligations by providing the employer with all the necessary information which is required to make this wage tax return possible within the regulatory time limit. In that case, the obligations come to rest with the employer again and exclusively.
If the third party does not do this, it remains solely responsible for these obligations, without the employer being held liable. The NSSO has confirmed this to us in writing.
The employer can therefore only be held liable if the third party has provided the employer with all the necessary information for the declaration in time and has paid the employee contributions to the employer.
In its judgment of 20 May 2019, the Court of Cassation ruled that a benefit (in cash or with a cash value) in return for work constitutes remuneration on which social security contributions are due, even if it is granted by a third party and is not at the expense of the employer. The obligation to declare and pay social security contributions rests with the third party. Only if the third party provides the employer with all the necessary information in time to enable the employer to make the declaration and payment itself will the employer be liable to pay the social security contributions.
On the basis of the judgment of the Court of Cassation, the door remains open a crack (theoretically) for benefits that are not granted in return for work. In its administrative instructions, the NSSO states that such benefits can only constitute remuneration if they are directly or indirectly at the expense of the employer. The NSSO does, however, interpret this condition very broadly and holds that it is fulfilled if "the third party passes on the financial cost of the benefit to the actual employer", as well as "in other situations where the grant is the result of the work provided within the performance of the employment agreement concluded with that employer or is related to the position of the employee with that employer".
This judgment of the Court of Cassation has major implications. Granting benefits to employees of another company in return for work entails social security obligations for the third party. This applies a fortiori in the context of group companies where, in practice, benefits are often granted by the parent company to employees of affiliated companies.
Forewarned is forearmed!